Wine as an Investment
If there is one thing people feel they know about wine, it is that
some bottles, especially very old bottles, are quite valuable. What
is it about the transformation of a simple fruit, such as grapes,
into an alcoholic beverage, that warrants such value? What makes one
wine worth a small fortune, while another, perhaps even one of
comparable quality, worth so much less? Can any wine really be worth
$1000 or more?
Wine is a simple product of the fermentation of mashed grapes. Its
quality may vary greatly due to climate, soil, age of the vines,
genetics of the vines, and most importantly, the skill of the
winemaker. Every year the climate changes, bringing variations to the
final product that are classified as vintages. The soil and genetics
of the vines tend to remain the same; however the vines continue to
age, yielding less, but more intense fruit, with every passing year.
Winemakers come and go, often leaving their mark on each successive
vintage. As in any profession, some winemakers exhibit greater skills
than others. All of these factors are combined to produce the final
test of the wine, its quality.
Each of the wine producing countries of Europe have tried to qualify
this ethereal concept of quality by defining procedures and yields to
be followed for specific regions. Certain vineyards and regions have
been recognized as being an historic factor in the quality of the
wines, and as such are rewarded in some way. This classification
system allows for instant recognition of quality, just by glancing at
the label. At least that is the premise, and like so many labors of
man, it tends to suffer from human error and inflexibility.
The wines of the New World are not straddled with any such
classification systems. For better or worse it is up to the consumer
to decide which producers, vineyards, or regions, have historically
yielded quality wines.
However quality is determined, it is price that is considered the
final indicator of quality. Quality is not the only factor in price.
Scarcity, as it does with any product, can drive a price up. As wines
age, they may increase in quality, and in scarcity, thus increasing
Not all wines improve
with age. Those that do have an upper limit of age. It
requires constant monitoring of the aging potential of wines to
determine at which stage of maturity they are at at any given time.
This monitoring can only be done by actually tasting the wines. The
results of these wine tastings are closely followed by the wine
press, and in turn by the wine investors, who use the data collected
to determine in their own minds, the relative value of the wine.
Most investment grade wine is sold at auction. In the US these
auctions are almost exclusively held in Chicago. For the rest of the
world it is the auctions in London that are used as bellwether marks
for setting prices. Any serious wine collector or appraiser must have
the results of these auctions, as well as the current retail pricing
of the most popular wines, in order to determine the value of a wine
at any given moment. The collection of these figures is a daunting
task, that fortunately is now done by someone else. William Edgerton
has under taken the role as collector of wine prices in a regularly
published document, entitled Wine
Price File. Many auctions are in fact charity affairs,
where the price of the wine may be exaggerated by the desire to
donate more than the value of the wine to the charity.
Just how much does a wine increase in value over time? Lets take a
look at a 1961 Ch. Latour. On release in 1961 dollars, it cost $3 to
purchase. Currently it is selling at auction for approximately $500.
This is a return on investment of just over 15% annually for 35
I picked 1961 Latour because it is a best case scenario. For our
second case, let us pick something less illustrious: 1975 Ch. Cissac.
A lesser Bordeaux wine from a lesser vintage. Ch. Cissac was released
for about $4 a bottle, it currently fetches $15 at auction. That is a
ROI2 of only 6.5%. Clearly not
all wines make great investments. Let us return to Ch. Latour for our
3rd example, but from 1975. Great wine, moderate year. Released at
$20 it would now bring $75 at auction. Again our ROI is only
Not considered in the above examples of ROI are the costs involved in
storing the wine (condition of the wine at at the time of the auction
can vary the value as much as 100%). If you have a passive cellar
with existing racking than these costs may not enter the equation. If
you use a plug in device to moderate the temperature of the aging
wine then you need to add as much as $10 a month3
for the cost of utilities (much more in Europe and other countries
where electricity is more expensive than the US). In the above best
possible scenario, the 61 Latour, this reduces the ROI from 15% to
around 12%. In the other scenarios it brings the 6.5% down to a loss
of over 200%.
While great wines in great years constitute above average
investments, almost any other combination yields, at best, below
average returns. There is much speculation about the quality of a
vintage as early as harvest; however only truly bad years can be
predicted at such an early date. It is one of the precarious truths
of investing in wine that the quality of a vintage is only told after
5 to 10 years have passed. By this time the wine has already begun to
appreciate, and if purchased at this point the ROI will be
considerably less once the wine has matured.
One of the most common ways to invest in wines, especially
Bordeaux4 , is by buying the
wines before they are even bottled. This is referred to as Futures,
and is itself an entirely separate type of gamble. Not only must the
vintage and demand for the wine be favorable, but chances are that
currency fluctuations will also play a role in the value of the wine.
All too often the demand is low, and the currency fluctuations are
high, and the delivered wine is worth less than you paid for it.
This scenario is exactly what happened in the 1970/71 vintages. Wine
speculation became trendy, and huge amounts of wine were bought and
sold at auction, long before the wine was ever released. The wine
press, too often the sheep rather than the shepards, took this volume
of trading, and its consequential rise in prices, to be an indication
of the quality of the vintage, and started to declare the 70 and 71
vintages as equals to the famed 61 and 59 vintages. Eventually the
wine was bottled and delivered. With great fan fare and expectation
the wine was tasted and declared.. mediocre. The prices started to
plunge and the entire market collapsed. The wines are still traded at
prices that are too high for the quality, and any knowledgeable
collector avoids both vintages.
Wine, like all art, has an intrinsic value above that it fetches at
auction. Unlike most investments, when you liquidate wine, you can do
it through the actual depletion of stocks, that is, you can drink it.
The joy that comes from sharing a well aged wine with friends can not
be quantified, and this is doubly true for a wine that has spent its
entire life in your cellar waiting for this very moment.
Are wines with outrageous price tags worth it? Again, there is no way
to judge the answer to this. Let me instead relate an analogy. I have
a client that makes over $20,000,000 a year. If this person works the
usual 240 days a year, 8 hours a day (he of course works much more),
his hourly rate is $10,416.67 an hour. For this person to pay for a
$1,000 bottle of wine, he only has to work about 6 minutes. If you
make $20 an hour, you have to work 50 hours to afford the same bottle
of wine. For those of us in the $20 an hour range, $1,000 bottle of
wine is the ultimate extravagance. For those in the $10,000 an hour
range, it is no more a stretch of the budget than a $2 bottle of wine
would be to us. In fact since there are so few good $2 bottles of
wine, the millionaire is actually getting a bargain.
The cost of the wine may well not be an indicator of the quality of
the wine. This is especially true in New World wines where the main
factor5 in the pricing of the
wine is the demand. Many wines become chic, propelled by the press
who are too afraid or ill informed to speak a dissenting opinion.
These wines often sport huge price tags that place them in the
highest leagues of World Class wines, without the wine itself being
that good. Since money is no guarantee of taste, these wines sell
briskly, increasing their value out of proportion to their quality.
In fact I would go so far as to say this is the case for the majority
of New World wines that find themselves selling at the highest
prices. The cost of advertising and promotion (especially if the
producer maintains lavish grounds or houses) can necessitate a retail
price far above a wine of similar quality with less overhead. Simple
touches, such as gold embossed labels may add several dollars to the
wine, before any wine is even added to the bottle. It requires an
well trained palate and great deal of confidence to weed out the
pretenders from the truly great wines. Time often tells, and those
chic and trendy wines rarely keep their value over the long haul.
The bottom line is that wine as an investment is so risky as to only
make it worth while for those that would be as content drinking the
wine at maturity, as selling it. To make matters worse almost all
localities have stringent laws relating to the commerce of alcoholic
beverages that may make selling a collection all but impossible.
grade wines, such as Bordeaux are released several years after the
vintage, so the investment in this case would not have been made
2 ROI = Return on
3 Utility costs
are averaged for the period of return
4 Since Bordeaux
are the most universally traded wines for investment, they will be
used for examples throughout.
5 Quality wines
cost more to make than simpler wines, and will always have a higher
price tag. This is true even for wines where the resulting quality is
not as great as the price would tend to warrant.